Wednesday, 12 June 2019

Yet another reason why workable competition matters

A small but select audience turned out last night for the latest Auckland LEANZ seminar, featuring Bill Rosenberg, the Congress of Trade Unions' policy director and economist, on the topic of "Low Wages: Is Competition a Factor?". This was a reprise of a May presentation in Wellington which Bill gave in association with Peter Cranney, an employment lawyer at Oakley Moran: the May slides can be found here.

Maybe the topic is more of interest to a Beehive-focussed audience, but it's a pity more people didn't attend in Auckland, because Bill made an interesting case. Beforehand, I'd been afraid that he was going to have a go at attacking free (or at least workably competitive) markets, and I'd been sharpening my claws. Quite the opposite, as it happened: Bill's case might as easily have been titled, "Low Wages: Is Lack of Competition a Factor?". His argument was that businesses have accrued too much monopsonistic market power in the labour market, and for a variety of reasons, including as a side effect of increased market power in goods markets as 'super star' companies have emerged and (perhaps) merger policing hasn't been all that it might have.

Skewed labour markets are becoming A Thing in antitrust circles, and I suspect we're going to hear a lot more about them. Here for example is the peroration from a recent article (cited by Bill) in the Harvard Law Review:
Labor market power is ubiquitous and costly to society. It is bad for economic growth and equality, and fuels political conflict. Yet labor market power is generally ignored by antitrust authorities and never considered as a justification for subjecting mergers to scrutiny. This contrasts with the regulatory concern for product market power. We argue that this asymmetry is not justified by either legal doctrine or economic theory and suggest that the economic analysis of product markets regularly deployed in the scrutiny of mergers can easily be applied to the labor market (p600)
How you might address imbalances of market power in the labour market is the tricky bit. Maybe the generic competition law of the land has a part to play (on egregious use of no-poaching or non-compete agreements, for example), although as the Harvard Law Review article says, even in the litigious US it hasn't got very far. 

Bill's got a menu of other proposals (his slides 38-40). Two of them got the tick from me - raising productivity, and better support for people affected by disruptive job losses - and while I'm more ambivalent about the third route (a greater role for collective bargaining) it's possible that the Fair Pay Agreements Bill supports might deliver net benefits.

The real trick would be to pull off what Denmark's managed - retaining a high degree of employer hiring flexibility, while also providing a lot of support (eg through retraining) to displaced employees. We're not currently crash hot on the support side, as this OECD graph shows (original document here), whereas Denmark is tops.


These 'active' labour market policies also have something of a moral imperative to them. If you subscribe to the idea that freer global trade brings net national benefits (as it does), and you recognise that the overall benefits create winners and losers (as they do), then there's a good case for looking after those who have fallen in the overall victory. And there's also cold-eyed politics involved: if you don't help out,  the losers will turn on trade itself. Trump's election and the US ranking on the graph are no coincidence.

Well done Bill; thanks to Sasha Daniels from Spark who emceed the evening; and special thanks to James Craig and the team at Simpson Grierson who hosted the evening.

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